No! You make the whole loan yourself. You get a lien against the property. You are the bank. You are in total control.

No! I have made loans as small as $5,000. (Honestly, these are harder to find. A mortgage loan will probably be in the $20,000-$25,000 minimum range, but seller financed notes can be found under $20,000). The amount of loan is determined by the borrower’s needs.

We believe that unless you are highly skilled in real estate matters, you should leave that up to the professionals. The loan can be closed at a local attorney’s office and all the expenses can be passed on to the borrower and/or included in the loan.

No! It can be any term you want. You’re the boss. Usually you want at least a 5 year
term and some investors don’t care if it stretches out to ten years or more, even up
to 30 years. You pick the term that suits your strategy for investing/retirement.
Some investors make interest only loans with a short-term balloon. Some will
amortize for 15 or 30 years and balloon in 5 years and some prefer longer terms. It’s
your money and it’s your choice.

Mortgages are purchased everyday like stocks. If you want out, it will take from two weeks to a month to sell your note. Since your interest rate will be fairly high, you will take very little discount, if any, when you sell. You really shouldn’t make mortgage loans if you feel you will liquidate shortly, but the option is always available.

All kinds of people. Some with good credit, some with poor credit. Some are owner occupants and some are investors. These people have learned… It’s not the cost of the money that counts, but the availability of it. In cases of an owner occupant, they may not qualify under bank terms for any number of reasons (i.e. poor credit, time on their job, dept ratio…) In a lot of cases, they would qualify, but just don’t want to deal with banks. They would rather pay the higher rates in exchange for the ease of getting the money.

This also holds true for investors. Having the funds available can make or break the deal. When an investor finds a good deal, they usually need to close quickly, in a couple of weeks, which is simply not possible with banks. Also, if the investor is good at locating the good deals, the banks want to penalize the investor for being a good bargain hunter. If the investor has t0o many bank loans (usually 3-5) the bank considers the investor to be to0 high risk and will not lend to them. Or if they do, they will only loan up to 80% of the purchase price, leaving the investor with nothing to do the rehab work. The loss of thousands of dollars in profits if the money wasn’t available. Remember, you as the lender won’t lend more than 70% to 80% LTV regardless. You’re making a safe loan in either case whether it is an investor or owner occupant. You should never make a loan without a 20%-30% safety net. If you don’t violate that rule, you should always come out a winner.

Actually there are several options in event of default by the borrower. Foreclosure is only one of them and usually the last on the list. The first thing you could do if your borrowers problem is temporary is restructuring the note. For example, let’s say your borrower was out of work for three months and was behind on his payments to you for the previous two months. Now they find a new job and would like to keep the house, be they can’t come up with enough money to bring you current plus his arrearage in addition. You could simply add the arrearage to the principle balance and extend the term of the loan. There is almost always a way to work it out if both sides are willing. Remember, it’s up to you whether to even let the borrower reinstate or not. Once they are in default you have the right to call the loan due or allow reinstatement. It’s your choice. You don’t have to take the payments unless you want to. At this point you are in total control. Of course you would only allow a reinstatement if the borrower has solved their problem and can continue to make payments.

If that is not the case … you have other options. You can offer to buy the property from the borrower in lieu of foreclosure. This is an opportunity for you to get a house at a greatly discounted price and avoid foreclosure at the same time. Your borrower has the option of either taking some money now and selling you the house or being foreclosed out and getting nothing. When this happens, you have created a tremendous profit center by simply reselling the house. Some investors make private loans in hopes that this will happen and some would rather not get involved with the real estate at all. Which ever you are … You Win!

Like I said earlier, when you can sell a house at 70% to 80% of it’s value, there are scores of investors/owner occupants who would take it off your hands. In fact, there are businesses built around tracking down these kinds of deals. If you have an uncooperative borrower and you can’t restructure or sell, then you are left with either selling your note or foreclosing. Yes, there are investors who are willing to buy your note, even if it’s in default. In fact… That’s why they want it! T

hey can either force payment of the debt or get the house. However, if you sell a note in default, you will usually have to discount it, so that isn’t my favorite option.

If left with no other options, you should simply foreclose. Foreclosure isn’t the evil, time consuming, costly legal process that most people think it is. It’s as simple as sending your note/mortgage to an attorney and saying “Do It”. All you have to do then is sit back and wait. Nine times out of ten, before the foreclosure is complete, someone will be calling your attorney’s office with a payoff letter, and your loan will get paid off. When this happens, you will collect all accrued interest, your principle balance and all attorney’s fees, court costs and all other expenses you have incurred in connection with your loan.

You see, when you’re into a property right, there are always lenders who will refinance, relatives who will bail then out, or scores of buyers who will buy them out. In the event that none of this happens, you will get the house in which case you will have the options we discussed earlier.

You have a lien against the property. You cannot be wiped out by bankruptcy. If your borrower files Chapter 7, you should be able to continue with the foreclosure process. It will be slowed down, but it won’t be stopped. You have a secured debt and a right to seize the asset. If Chapter 13 for reorganization if filed, your borrower will be ordered to continue with his monthly payments and probably an additional payment on his arrearage. In the event that one payment is missed, you can then proceed with the foreclosure process and usually, within 30-60 days the process will be complete. Bankruptcy will slow the procedure, but will not keep you from collecting your debt.

Your closing package should contain the following:

• An original Note A Copy of the mortgage. (The original will be recorded and then sent to you)
• A homeowner’s insurance policy, naming you as Mortgagee.
• A first mortgage verification (if you’re making a second).
• An application on your borrower.
• A title insurance policy for the amount of your loan insuring you against any title defects.
• A recent appraisal of the property.
• An assignment of rents allowing you to collect rents in case of default. (This should be done even if owner occupied) If the owner moves out and rents, you don’t want him collecting rents while you are foreclosing. This document gives you the right to start collecting immediately upon default.

Yes! As long as you’ve followed the guidelines that we’ve talked about and apply common sense. No, mortgages aren’t as hands off as mutual funds, stocks or other kinds of nonparticipation investments, but in return for a little effort on your part, your money will grow two, three or even four times faster than your current investments and in addition, you maintain control. If you follow some simple guidelines when making loans your risk will be minimal at best. 

Briefly, these guidelines are:

• Make only low LTV loans… No exceptions! An appraisal will confirm value.
• Get title insurance for amount of your loan.
• Have a professional close the loan.
• Make sure an insurance policy is maintained on the property at all times.
• Take action in case of default immediately!

Making real estate loans is an approved and widely accepted use of IRA’s and Pension Plans. Think of it, now you cannot only loan out money that has been unavailable for you to use, but you can make it grow rapidly… Tax Deferred! Since Uncle Sam isn’t taking a bite of your profits until you draw out the money, or never if you have a Roth IRA, more money is left in the account to compound and grow. The results are staggering. You’ll be receiving interest on interest on interest and It’s All Legal And Approved By The IRS!

In order for you to use retirement accounts for loans a “Third Party Administrator” or TPA must administer them. This TPA is set up and approved to administer your loan activities. This means you will probably have to transfer your plan to one of these TPA’s, unless of course, your present administrator is set up to do that, but the likelihood of that happening is slim to none.

Quest IRA, Equity Trust, or Mid Ohio Securities are the TPA that I use as well as many of my colleagues. They specialize in real estate investing and can answer many of your questions regarding this topic of making loans with you IRA or Pension Plan. However, you can use any TPA of your choice.

When your TPA is located, simply send the transfer form to them and they’ll do all the work for you. Once you’ve done that You’re Ready To Make Loans! When you’ve selected a loan, you simply notify your TPA where to send the check for the gross amount of the loan and you’re in business. There should be no costs to you except your plan administering costs. Most TPA’s will even collect the monthly payment for you and deposit them into your account. There are some restrictions when dealing with IRA’s such as self dealing, but you’re TPA will furnish you with all of the facts upon request. If you have any questions regarding your plan or its administration, contact your Plan Administrator.